Episcopal Diocese of East Carolina

Episcopal Diocese of East Carolina

Contract AuditReport

ChurchCity

Audit Year:Dates of Audit:

General Review

1.Review of Last Audit

Obtain copy of the most recent audit report completed. Year

Source of audit: In-house Audit by Parish Audit by Diocesan Contract Auditor

CPA Audit No Audit for Last Fiscal Year

Yes No Unknown

Copy of Auditor’s report on any deficiencies and Vestry’s response to deficiencies was sent

to Diocesan office.

2.Vestry Minutes Review

Review vestry minutes for the year being audited and November and December of the prior year. Vestry minutes were found to include the following:

Yes No

Approval of budget

Approval of monthly or quarterly financial reports

Clergy salary and housing allowance resolution is correctly worded and approved in the prior
yearminutes (if applicable)[see background information in Appendix]

Material expenditures approved

Comments on extraordinary gifts or bequests

Explain any no’s on Comment and Recommendation page

3.Insurance Records Review

See Appendix A for review guidelines

Name of Insurance Carrier ______Policy Period Dates

Building and Contents Limits: ______Liability Limits ______

Insurance coverage includes all areas listed in Appendix A

Does Insurance limit cover replacement costs?

How often is insurance coverage reviewed and by whom. ______

Does the Parish maintain a video inventory of property?

The Parish adheres to the Diocesan policies and procedures requiring Sexual Ethics training and

background checks for all employees and anyone working with children

Any commentsshould be noted on Findings and Recommendation page

4.Tax Status

Parish has letter from IRS assigning church its federal tax ID numberand tax exempt status or

Parish has copy of letter of National Church’s Group Exemption Notice

If no to both, Parish must obtain a copy of church’s Exemption letter from IRS or Group Exemption Letter from Diocesan Houseto have on file

Parish tax ID is verified from last parochial report filed

Parish has State tax exemption letter [See background information in Appendix]

Any comments should be noted on Findingsand Recommendation page

5.Use of Church Property by Other Organizations

Other organizations regularly use church property; (If no, skip to #7)

Parish has current rental agreements between church and organizations on file

Does the church require Certificates of Insurance and Hold Harmless agreements when outside

groups use the church property?

For groups who work with children, do they supply proof of Sexual Ethics training and required

background checks on all employees/volunteers?

Any comments should be noted on Findingsand Recommendation page

6.Church Sponsored Schools

There is a church sponsored school or preschool on site (If no, skip to #7)

The school has a separate Board of Directors and list of Board is on file

There is a separate tax ID number

The school is licensed by the state of North Carolinaand copy of license is on file

The school is accreditedand copy of Accreditation Certificate is on file

There are background screening procedures for teachersand copy is on file

Property and liability insurance coverage of school is current

Date of last periodic fire department inspection

Last annual audit of school

Last audit completed by

Any comments should be noted on Findings and Recommendation page

7.Parochial Report

Parochial Report for year being audited has been filed

Parochial report corresponds to the yearend income andexpense statement.

List major discrepancies, if any, on Comment and Recommendation page

8.Property Report

Annual Property Report has been filed

All property on report is reflected inbalance sheet items: Fixed Assets, Mortgages

Any comments should be noted on Findings and Recommendation page

Assets

List all checking, savings, investment, discretionary, guild and other church-related organization accounts in the table below.Review bank statements, passbooks, and investments for full year, plus December of prior year and January of succeeding year.

Account Name / Type:
Checking
Saving
Investmnt
Discretion
Guild, etc. / Church Address
Yes No / Church
Tax ID
Yes No / Statements
Provided
Yes No / Cancelled
Checks
Yes No / Bank
Reconciliations
Complete
Yes No / 12/31 bankbalance agrees with year-end balance sheet
Yes No

If previous year was not audited, for accounts listed, obtain copies of bank reconciliations for month of December of prior year.

Yes No

Bank reconciliations have been done on monthly basis on all accounts

Bank reconciliation for December of prior year is accurate and agrees with January 1 beginning balance of current year.

If bank reconciliations have not been done, prepare bank reconciliations for all accounts for the year being audited.

Any comments should be noted on Findingsand Recommendation page

Non-Operating Accounts

Test Guild and other church-related organization checking accounts (other than general operating account) per the following procedures for each account.
Determine the number of checks to be tested using the table below.

Checking Account Name:
Last Check number used in audit year
First check number used in audit year
Total number of checks used in audit year / 0
Percentage of checks to be tested / 10%
Number of checks to be tested. / 0

Randomly select one check number in the first 9 checks written in audit year, then test every 10th checkafter that one and use the #2 Spreadsheet belowto record findings. (A-5-2)

Name of Account: (Non-operating Acct) / Workpaper A-5-2
Purpose of Account:
Adequate / Proper
Documentation / Use
Check # / Date / Payee / Amount / Yes / Yes

Print and re-use this page for each checking account.

Obtain copies of all bank statements for savings and investment accounts for the year being audited. Examine monthly/quarterly statements for transfers between accounts and trace the transfers. Report findings in table below.

Spreadsheet to test savings and investment accounts (A-6)

Name of Bank Account:
Type of Account:
Restricted: Yes No
Types of Restrictions: / Work paper A-3
Audit Year
Proper / Proper
Date / Amount / Purpose of Withdrawal / Authorization / Use
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes

Print and re-use this page for each Savings or investment account.

Yes No

Does the church have petty cash accounts for operating expenses or other church related
organization accounts?If no, skip to #4

If yes, list the accounts in table below and test:

Receipts in Petty Cash Box + Money on Hand = Original Amount

Are there IOU’s in Petty Cash box

How often is petty cash is reconciled (replenished)

Test petty cash reimbursements and determine that expenses are being charged to correct expense

accounts and not to balance sheet account.

Name of
Petty Cash Account (Operating/Organization) / Account on Balance Sheet
Yes / Original $ Amount / Receipts on Testing Date / Money on Hand on Testing Date / Receipts + Money / IOU’s in Petty Cash Box
Yes / When is
Petty Cash Reconciled / Petty Cash Activity
Charged to Correct Accounts
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00

Any comments should be noted on Findings and Recommendation page

What method is used to report Fixed (Capital) Assets on balance sheet

Cost (actual value when purchased)

For year being audited, trace purchases to appropriate documentation

Fair market value at end of year

Review copy of documentation for fairmarket valuation and trace to balance sheet

Appraised value

Review copy of appraisal and trace to balance sheet.

No fixed assets on balance sheet; expensed through budget

Other: Explain

There are material receivables on the balance sheet? If so, list the material receivables and confirm the balance by sending a confirmation to the customer, or trace to subsequent deposits in the current year.

There are material prepaid expenses on the balance sheet? If yes, list the prepaid expense and confirm the balance by tracing to proper invoice. Determine if the expense should be designated as prepaid for the year being audited.

Any comments should be noted on Findingsand Recommendation page

Fund Balances

Review list of permanently and temporarily restricted funds, and unrestricted funds (See Appendix for definitions of different types of funds)

For each fund listed, verify that the uses of principal and income have been honored, including proper documentation of expenses.

Spreadsheet to test savings and investment accounts (A-6)

Name of Fund Fund:
Type of Account:
Restricted: Yes No
Types of Restrictions: / Work paper A-6
Audit Year
Proper / Proper
Date / Amount / Purpose of Withdrawal / Authorization / Use
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes
Yes / Yes

Print and re-use this page for each restricted fund

Liabilities

Yes No

Mortgage statements indicate that mortgage payments are up to date.

Last mortgage statement for year being audited traces accurately to balance sheet, OR

All mortgage payments for the year being audited trace to proper expense accounts.

Pledge to Diocese for year being audited was paid in full

Pledge statement from Diocesan House agrees with parish’s records

Utility bills for year being audited were paid on a current basis

There are other significant payables at end of year being audited, excluding payroll taxes and
pension payments (tested in other areas). List below

Balance verifies with supporting documentation

Any comments should be noted on Findings and Recommendation page

Cash Receipts

Are there proper safe guards and controls in place for plate collections and deposits:

Yes No

Are the collection receipts counted and deposited so that the deposit equals the entire amount

of receipts on a timely basis (e.g., at least weekly)?

Are there at least two unrelated persons responsible for counting and depositing the

collections?

Are the persons responsible for counting receipts rotated on a periodic basis?

Do the counters have a standardized form for recording the deposit information?

Are the counters’ sheets retained and reconciled with actual deposits, and are all discrepancies

investigated?

Is there a control prohibiting the cashing of checks from the currency received?

Are all of the pledge envelopes or other memoranda retained and reconciled to the recorded

amounts?

Are all other cash receipts recorded and deposited on a timely basis?

Are all checks received restrictively endorsed —for deposit only immediately upon receipt?

Are all cash receipts deposited into the general operating checking account?

Are periodic statements provided to donors of record, at least quarterly?

Do acknowledgments of contributions in excess of $250 include “any goods or services

provided consist solely of intangible religious benefits”?

For pledge receipts and plate offerings, determine if deposits are made once a week, more than once a week or daily as checks are received in the mail.

If pledge deposits are made once a week, choose 6 randomdeposits to test in the table below. Verify that journal entries match deposit slips.

If pledge deposits are made more than once a week or daily, trace a random sample (10%) of cash journal entries to weekly cash receipts records.

Use table CR-2 on the following page to test these deposits.

Deposits-General Checking acct. / Work paper CR-2
Year:
Deposit
Date / Total Pledged Amount per Journal / Total Loose Plate Offering per Journal / Total Other Offerings per Journal / Grand Total of Deposit per Journal / Total Deposit per deposit slip

Print and re-use this table as needed for testing pledges.

If there are any other material receipts other than plate and pledge receipts over $500,test a random sample(10%) by tracing cash journal entries to cash receipt records in the table below.

Other Deposits / Work paper CR-3
Year:
Deposit traced to
Deposit
Date / Deposit amount
In Journal / Deposit amount
Per deposit slip / Adequate
Documentation / Accurate Income Account

Cash Disbursements:

Are there proper safe guards and controls in place for plate collections and deposits :

Are all disbursements made by check, except for small expenditures made from petty cash?

Are all checks pre-numbered and used in sequence?

Is there a clearly defined approval process for all disbursements?

Are all voided checks properly cancelled and retained?

Are all checks made payable to specified payees and not to cash or to bearer?

Are all disbursements supported by original documentation?

Is the original vendor‘s invoice or other documentation cancelled at the time of signature to

prevent duplicate payment?

2. Check signing:

Is signing blank checks prohibited?

Is using a signature stamp or pre-printed signatures prohibited?

Does all supporting documentation accompany checks presented for signature?

Are all account signers authorized by the Vestry?

Is more than one signature required for any check?

If not, do checks for more than $500 require more than one signature?

If signature imprint machines are used, are the keys kept under lock and key except when in

use?

Are all disbursements requiring special approval of funding sources or the Vestry properly

documented in the Vestry or Finance Committee minutes?

10. Are there adequate controls and segregation of duties regarding electronic funds transfers?

Examine 10% of non payroll cash disbursements of $500 or more and 1% of non payroll cash disbursements under $500. You may use Random Testing Calculations in Appexdix B to decide which checks are to be tested. Test the sample of cash disbursements for proper signature, correct amount per invoice, correct expense account per budget, and proper approval and record findings in Table CD-1 below

Any comments should be noted on Findings and Recommendation page

Cash Disbursements
Number of checks over $500
Number to be tested (10%)
Number of checks under $500
Number to be tested (1%) / Proper / Amount Agrees with Supporting / Work paper CD-1
Year:
Correct
Expense Proper
Check # / Date / Payee / Signatures / Document / Account / Approval

Print extra copies of form as needed.

Payroll and Retirement:

Obtain list of all employees and contract laborers for year under audit and test as follows:

Name / W-2 or
1099 / Form W-4 / Form NC-4 / Form I-9 / Salary Amount Agrees with Budget / Payroll Register Agrees With
Check Register

Employees who should receive a W-2 normally include:

Clergy (full time and part time), Supply clergy if contracted for an extended period (3 or more months), Musicians that routinely play at services, Youth Directors, Administrative staff, Paid nursery attendants that routinely work a standard schedule (even if only once a month), Janitor or sexton

Yes No

Based on examples in #2 above, any worker receiving a 1099 in lieu of a W-2 is correctly

classified as a contract employee.

Quarterly reports were filed by due dates

Total amounts from the quarterly returns match the amounts on the annual Forms W-3

and NC-3

Amounts on Forms W-3 equal general ledger compensation expense accounts adjusted for:

Pretax deductions such as medical insurance premiums paid by employees and employee retirement contributions
Group Life Insurance Premiums
Clergy housing and utilities allowances
Taxable allowances such as travel
Taxable moving expenses
Personal use of auto owned by parish

Review of W-2 forms shows:

Clergy Housing and Utility Allowances are reported in Box 14

a. Box 12 includes proper items such as

Employee contributions to retirement plan
Group Life Insurance Premiums-annual letter sent to parishes from Diocesan House with information
Pre-tax medical insurance premiums

Clergy does not have information in boxes for Social Security and Medicare Wages or Taxes

Lay employees do have information in boxes for Social Security and Medicare Wages and Taxes

If payroll taxes were due at end of year,

They were properly reported on Balance Sheet as a liability

They were paid on time

Determine that employees are properly classified as exempt or non-exempt (for overtime purposes)

Non-exempt employees document hours worked via time sheets

Overtime is being compensated correctly (Any hours worked over 40 per work week must

be paid at time and ½ rate

Test Clergy Pension Payments for the following:

Clergy Pension payments equal 18% of salary, FICA allowance, other taxable allowances, and actual

utilities and housing allowances (or 30% of salary and FICA and other allowances if parsonage is provided)

Clergy Pension payments are up to date

Verify that the retirement plan for lay employees:

Includes all lay employees who work at least 1000 hours/year

Pension payments are calculated correctly

Pension payments are up to date

Any comments should be noted on Findings and Recommendation page

Discretionary Funds

List all discretionary funds and clergy positions holding those funds:

Name on 1st Account / Name on 2nd Account / Name on 3rd Account
Clergy Person holding funds
Fund in name of Parish / Yes No / Yes No / Yes No
Established by resolution of Vestry / Yes No / Yes No / Yes No
Church Tax ID # on account / Yes No / Yes No / Yes No
Did donors specify for Discretionary fund / Yes No / Yes No / Yes No
Were funds used for operating expenditures / Yes No / Yes No / Yes No
Were funds used for personal expenses subject to tax / Yes No / Yes No / Yes No
Were funds used for the purposes for which they were intended / Yes No / Yes No / Yes No
Were checks written to vendors and not individuals / Yes No / Yes No / Yes No
Were contributions deposited into the general fund, then transferred to the Discretionary Fund. / Yes No / Yes No / Yes No

It is important that the information reviewed for the discretionary funds remains confidential. No individual testing of disbursements will be made.